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Is an Adjustable Rate Mortgage (ARM) Right for You in Baton Rouge?

real-estate-trends-2025| home-buying-tips| affordability
June 20, 2025•4 min read

What Baton Rouge Homebuyers Should Know About ARMs in Today’s Market

📉 What Is an Adjustable Rate Mortgage (ARM)?

An Adjustable Rate Mortgage, or ARM, is a home loan with a variable interest rate. For the first few years — usually 5, 7, or 10 — your rate stays fixed. After that, it adjusts annually based on market conditions. For example, a 5/1 ARM means your rate is fixed for the first 5 years and then adjusts once a year after that.

🏠 Why Are ARMs Making a Comeback in Baton Rouge?

Homebuyers in Baton Rouge are increasingly looking at ARMs to counter the impact of today’s higher mortgage rates. Here’s why ARMs are becoming popular again:

  • Lower initial interest rates compared to fixed-rate loans

  • Monthly payment savings during the initial term

  • Smart choice for short-term plans (like relocating or upgrading homes in a few years)

  • Greater financial flexibility in today’s economy

💡 Example: How a 5/1 ARM Could Save You Money

Let’s say you’re buying a $300,000 home:

  • A 30-year fixed loan at 7.25% would give you a monthly principal and interest payment of about $2,047.

  • A 5/1 ARM starting at 6.00% would bring your monthly payment down to around $1,799.

That’s a difference of about $248 per month, or nearly $15,000 in savings over the first 5 years.

If you’re likely to move, sell, or refinance before the ARM adjusts, that initial savings can be a huge advantage.

🔍 What Happens After the Fixed Period?

Once your ARM’s fixed period ends, your interest rate starts adjusting each year. The new rate is based on a market index (like the 1-Year Treasury or SOFR) plus a fixed margin from the lender.

Don’t worry — there are safeguards in place:

  • Your rate can’t jump more than 2% the first year after adjustment

  • It can’t rise more than 2% per year after that

  • And it can’t go up more than 5% total over the life of the loan

This structure is often referred to as “2/2/5 caps," but there are other structures as well. Be sure to ask your Loan Officer what the structure of the cap is.

👍 When Does an ARM Make Sense?

Adjustable Rate Mortgages are ideal for many scenarios, especially if you:

  • Plan to sell or refinance within the next 5 to 10 years

  • Are purchasing a starter home or short-term residence

  • Want a lower monthly payment upfront

  • Expect rates to drop in the future and want to refinance later

They’re less ideal if you’re buying your forever home and need a payment that will never change.

⚖️ ARM vs. Fixed Rate Mortgage — What’s the Difference?

Let’s break down the differences in simple terms:

Adjustable Rate Mortgage (ARM):

  • Starts with a lower interest rate

  • Rate may go up or down after a few years

  • Ideal if you plan to refinance or move soon

  • Comes with some uncertainty after the fixed period

Fixed Rate Mortgage:

  • Higher starting rate, but it never changes

  • Predictable monthly payments for the life of the loan

  • Better for long-term homeowners who want stability

  • No surprises — but may cost more upfront

🔁 Can You Refinance an ARM Later?

Yes — and many people do! You can refinance your ARM into a fixed-rate loan before it starts adjusting. This is a common strategy to lock in a new rate and protect yourself from potential increases. At 1st Phase Mortgage, we help our clients monitor the market and refinance at the right time.

📍 Local Insight: Baton Rouge ARM Trends

Here in Baton Rouge, ARMs are trending with:

  • First-time buyers who are budget-conscious

  • Move-up buyers who want more house for less

  • Investors looking to maximize rental income

  • Homeowners who expect to sell or upgrade in a few years

ARMs can be a smart, strategic choice — especially in today’s rate climate.

🧠 Final Thought from Trace David

Many people think ARMs are risky, but the truth is they’re just misunderstood. When structured properly and aligned with your goals, an ARM can be a great way to save money and keep more cash in your pocket — especially in the early years of your mortgage. When you partner with the right financing team, you can trust the market experts will keep you informed of changes and potential savings.

📞 Ready to See if an ARM is Right for You?

Let’s review your options together. I’ll help you compare fixed and adjustable rates based on your specific goals, budget, and timeline.

Contact Trace David – Baton Rouge Loan Officer
📞 (225) 321-3777
📧 [email protected]
🌐 www.tracedavidmortgage.com

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